Bandalan v. CIT Bank N.A. et al

Filing 12

INCLINATIONS by JUDGE SUSAN OKI MOLLWAY. (afc)CERTIFICATE OF SERVICE Participants registered to receive electronic notifications received this document electronically at the e-mail address listed on the Notice of Electronic Filing (NEF). Participants not registered to receive electronic notifications will be served by first class mail on the date of this docket entry.

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INCLINATIONS It is Judge Mollway’s practice, whenever possible, to notify attorneys and pro se parties scheduled to argue motions before her of her inclinations on the motions and the reasons for the inclinations. This is part of Judge Mollway’s normal practice, rather than a procedure unique to a particular case, and is designed to help the advocates prepare for oral argument. It is the judge’s hope that the advance notice of her inclination and the accompanying reasons will focus the oral argument and permit the advocates to use the hearing to show the judge why she is mistaken or why she is correct. The judge is not bound by the inclination and sometimes departs from the inclination in light of oral argument. Judge Mollway attempts to communicate her inclinations no later than one working day before a hearing. The court’s preference is to distribute the inclinations to the parties via the court’s electronic filing system (“CM/ECF”). Accordingly, parties are encouraged to participate in the court’s CM/ECF system. The inclination is intended to be only a summary of the court’s thinking before the hearing and not a complete legal discussion. The court will issue a written order with a detailed analysis after the hearing. The parties are reminded that, under Local Rule 7.4, they may not submit supplemental briefs (such as briefs addressing the inclination) unless authorized by the court. Supplemental declarations, affidavits, and/or other evidence in response to the court’s inclinations are prohibited unless authorized by the court. The parties are also reminded that they must comply with Local Rule 7.8 if they intend to rely on uncited authorities at the hearing. Occasionally, Judge Mollway does not announce an inclination, especially if materials are submitted to her right before the hearing. Because briefing on criminal motions closes just a few days before the hearing, it is not uncommon for her to be unable to announce an inclination on a criminal motion until the start of the hearing itself. Certainly if an evidentiary hearing is scheduled on matters necessary to a decision on either a civil or criminal motion, no inclination will be announced. Judge Mollway’s inclinations may not be cited as authority for any proposition. However, the inclinations will be electronically filed for the convenience of the parties. Judge Mollway announces the following inclinations: Bandalan v. CIT Bank, N.A., Civ. No. 17-00245 SOM/RLP This case is almost identical to Hall v. CIT Bank, Civ. No. 17-00224 SOM/KJM. However the court rules, it is likely that the same reasoning will apply to both cases. The court asks the parties to come to the hearing prepared to address the following: 1. Assuming the Corres are good faith purchasers for value with respect to the sale of the property to them, should they be parties to this action, which seeks the return of title to the property that the Corres’ purchased? It appears that adding them to the case would destroy diversity. 2. What do the parties suggest? The issues raised in the present motion are also raised in at least three other cases in this court that have been removed from state court: Capili v. CIT Bank N.A., Civ. No. 17-00243 HG/KJM; Hall v. CIT Bank, Civ. No. 17-00224 SOM/KJM; and Hishinuma v. HSBC Bank USA, N.A., Civ. No. 17-00219 HG/KJM. What is the status of other cases that have not been removed but involve the same issues? a. Has a Hawaii circuit court ruled on whether a Land Court certificate of title has or lacks conclusive and unimpeachable effect under analogous circumstances? 2 b. Has any court ruled on whether the failure to conduct a nonjudicial foreclosure sale in conformance with either a power of sale clause or a nonjudicial foreclosure statute renders the sale void or is a “constructive fraud” that allows title to be challenged, notwithstanding a certificate of title? c. Is any appeal pending that is likely to address 2(a) or 2(b)? If yes, at what stage is that appeal? 3. The Hawaii Supreme Court has stated that “conclusive effect is to be given the certificate of title on the question of title to land.” Aames Funding Corp. v. Mores, 107 Haw. 95, 101, 110 P.3d 1042, 1048 (2005). “[A] mortgagor’s right to impeach a foreclosure proceeding is expressly limited to the period before entry of a new certificate of title.” Id. The Bandalans contend that their lender’s failure to adhere to the terms of the power of sale amounts to a constructive fraud that allows title to be challenged notwithstanding any Land Court certificate of title. See In re Bishop Trust Co., 35 Haw. 816, 825, 1941 WL 7950, at *5 (1941) (recognizing fraud as exception to conclusiveness of Land Court certificate of title). 3 Citing Ulrich v. Security Investment Company, 35 Haw. 158, 171, 1939 WL 8155 (Haw. Terr. 1939), the Bandalans say that, in selling property through Hawaii’s nonjudicial foreclosure process, a lender is tantamount to a trustee and is a fiduciary. Based on Ulrich, the lenders argue that “all of the incidents” of a trustee-beneficiary relationship do not exist when a lender sells a borrower’s property under a power of sale. Id., 35 Haw. at 171, 1939 WL 8155, at *7. The Bandalans counter that “[a] sale under a power must be fair and bona fide to have the effect of extinguishing the equity of redemption. The mortgagee has no right, by any unfairness, to sacrifice the property, and deprive the mortgagor of a surplus over the debt which might arise from a sale properly conducted; or make him liable for a deficiency greater than there would be under a sale fairly conducted.” Id. The Bandalans also argue that a lender’s failure to comply with the power of sale provisions renders the sale void such that they may challenge title notwithstanding the Land Court certificate of title. The issue is therefore whether and under what circumstances a lender’s alleged failure to comply with 4 a power of sale or a statute governing the exercise of that power of sale, chapter 667, part I, of Hawaii Revised Statutes, amounts to “constructive fraud” or makes the sale void. a. The court is inclined to note that it may certify a question to the Hawaii Supreme Court when: (a) there is a question concerning Hawaii law; (b) the question is determinative of the cause; and (c) there is no clear controlling precedent in Hawaii judicial decisions. See DeRosa v. Association of Apartment Owners of the Golf Villas, 2016 WL 3951061, at *2 (D. Haw., July 20, 2016); Haw. R. App. P. 13(a). The parties are asked to come to the hearing prepared to discuss whether the issue should be certified to the Hawaii Supreme Court. b. If the court were to certify the issue, the parties should come to the hearing prepared to discuss what question(s) should be certified. 5

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